Why Form 1120 Reit Copyright 2023-2024

Hi Mark Kohler here with a two-minute tax and legal tip. Now, in my opinion, every small business owner should consider converting to an S corporation at some point. Let's address the two big reasons: asset protection and tax savings. Asset protection is important for small business owners, as incorporating can provide a corporate veil that protects personal assets from business operations. This is particularly valuable for businesses with inherent risks. The second main reason is tax savings. If you are operating as a sole proprietorship or a single-member LLC, or even as multiple partners in an LLC, all of the net income attributed to the owners will be subject to self-employment tax (15.3%). On top of that, there are federal and potentially state income taxes. However, in an S corporation, you become an employee and can take a salary. Only the salary is subject to self-employment tax, FUTA, FICA, or payroll taxes. The net income flows through as a dividend, avoiding the self-employment tax. Finding the right balance between salary and dividend is crucial, but it can result in substantial savings, potentially saving you thousands of dollars. It is important to consult with a tax professional to explore your options and determine the best approach for your business. Now, for the naysayers who argue that a C corporation is a perfect fit for every small business or that operating as an LLC is sufficient, be cautious. While an LLC can provide asset protection, it does not offer the same tax benefits. A C corporation is typically better suited for larger corporate strategies and may not be ideal for a small business owner. It's always wise to seek a second opinion and carefully consider your options. In conclusion, I hope these strategies help you in your pursuit of the American dream. Remember to continually evaluate...